Proposal by the EU Commission may affect delegation of services

On 20 September 2017, the European Commission issued proposal 2017/0230 (COD) to reform the EU’s financial industry supervisory structure by reinforcing the role played by the European Supervisory Authorities (ESAs) and providing ESMA, the European Securities and Markets Authority with new supervisory power.

ESAs shall, between others, be in charge of the monitoring of National Competent Authorities (NCAs) practices in allowing market players – i.e. fund managers, banks, insurance companies, and investment firms – to delegate and outsource a material part of its activities or any of the key functions to non-EU countries, to ensure that risks are well managed and to prevent non-compliance of the market players with EU rules. NCAs would have to notify the respective ESA for every authorization request they receive from firms willing to delegate a material part of their activities outside of the EU.

The Proposal also foresees, between others, ESMA’s ability to restrict or prohibit marketing, sale and distribution of units or shares of (UCITS or) AIFs by their managers in defined and exceptional cases, i.e. significant investor protection concern, a threat to the financial markets or to the stability of the financial system of the EU or when a NCA does not take action to address the threat.
The proposal is now to be discussed by the European Parliament and the European Council.